Hamilton County bond sale is accountant's equivalent of NFL draft

Hamilton County bond sale is accountant's equivalent of NFL draft

October 30th, 2011 by Ansley Haman in News

Hamilton County Finance Director Louis Wright

Hamilton County Finance Director Louis Wright

With 1:57 left on the clock and millions of dollars on the line, a team stared at a screen as one of its players repeatedly clicked "refresh."

"They're killing me," said the usually calm and guarded Louis Wright, Hamilton County's finance administrator, as he waited Tuesday morning for the first bid on $86.4 million in debt. "They really are waiting until the last minute."

One bid. Four bids.

"We've got to have more than four, come on guys," Wright said of the Wall Street investment banks hanging on to their offers until the final seconds. "They usually like to win Tennessee debt."

Paula Borden, the computer tech, pressed refresh again.

Ten bids.

In the end, the deal saved at least $2 million and allowed county officials to announce the next day that they would be spending $50 million to build new schools.

Last week's event was akin to the National Football League's draft, where college players across the country train and play hard for years and then eagerly wait, knowing that being perceived as the best can yield a contract that will leave them financially set for life.

For most, a bond sale lacks the fanfare of the NFL draft, but for Wright's financial team a major sale is packed with almost as much drama. They know the consequences will affect every taxpayer in Hamilton County for at least 15 years. And they want to be holding the best contract.

The county's finance team allowed the Chattanooga Times Free Press to attend its most recent bond sale, offering a rare look at how a much-overlooked process takes place.

NFL prospects spend months preparing for the combine, a four-day workout that tests their agility and endurance against that of every other athlete in the market.

For a bond sale, the entity selling must be reviewed for fiscal stability and long-term performance.

The NFL combine rates the physical. The credit combine rates the fiscal.

At the end of a rigorous review, credit ratings agencies issue a score. The gold standard is AAA.

Football players hire coaches to get them into top shape. The county hires financial advisers.

Wright and his finance team spent more than two months preparing for the sale. The staff, outside lawyers and consultants put together a 125-page report on every aspect of the county - government structure, industry leaders, top employers and history.

The report tracks decades of demographic data and years of revenues and expenses.

Wright's goal? To maintain the county's AAA rating with all three major credit rating agencies. The likes of Moody's, Standard & Poor's, and Fitch must review the county before it can go to the bond market.

Often an interview process allows New York investors to ask questions and, many times, to visit.

For this review, none of the ratings agencies opted to come South, Wright said. Two of the three were here only months ago ahead of a city bond deal.

Though credit rating agencies primarily care about the fiscal, the physical - geography and infrastructure - also matters.

In a previous county bond deal, Wright said, investors took a bus tour of Enterprise South industrial park, even stopping to examine the rail lines leading into the site.

By Oct. 19, all three agencies gave Hamilton County a top grade - AAA. One of those, Moody's, qualified that rating with a negative outlook.


Wright and his team suited up Tuesday morning, knowing they had a AAA rating. The high rating generally signals stability to investors and often yields lower interest rates.

Still, Wright confessed he wasn't certain what would happen in the sale.

"The rates moved against us a little bit," he said early in the day.

"Anything below 3 [percent] is going to be good," he assured his staff. "Anything above 3 is the market moving against us."

He knew the whole time that Tuesday's result would affect the amount they could borrow to build new schools.

Of the state's 95 counties, Hamilton and Williamson are the only two that have held a AAA rating this year. Williamson is the wealthiest of the state's counties. Wright, who's been counting beans in Hamilton County for more than 30 years, likes to think that Hamilton is the state's shrewdest.

Wright placed a conference call to the county's financial advisers, Public Financial Management Inc. in Memphis, about 10 minutes before the sale. He wanted to know if there would be bond sale competition.

Yes, one county, also rated AAA, responded consultant Ryan Childs.

"That ain't gonna help," Wright said.

Albert Kiser, assistant financial administrator, refilled his coffee cup.

"This is exciting for accountants," he said with a laugh.

The likes of J.P. Morgan, UBS, Wells Fargo and Morgan Keegan filled the screen.

Across the table, Domina Alford noted that Borden kept refreshing the screen, which was projected onto Mayor Jim Coppinger's conference room wall.

"Are you nervous? Are you nervous?" Alford asked.

Two minutes ticked by, to 1:59 remaining in the sale.

Wright's questions picked up.

"That's not two and a half percent, but it's a lot better than three," Wright said.

He accepted the lowest bid electronically after Childs confirmed the numbers in the offer.

"Bingo," Wright said, as he clicked the screen. "I think we sold strong."

Wright couldn't pull himself from the screen after the county's sale was finished.

He monitored a similar sale for a AAA-rated county in another state. The other county received a higher interest rate than Hamilton County.

Wright noted that minutes later when he reported to the Hamilton County Commission, which was meeting three floors above him.

J.P. Morgan Securities LLC came in lowest with an offer of 2.737 percent true interest cost over the life of a 15-year, $86.4 million bond. The lowest bid led to more than $2 million in savings.

The deal will save the county 9.3 percent, Wright said.

"When we started, the net savings was at just a little over 8 percent," Wright said. "It takes a long time to do all the things you need to do to do a deal, and the market's moving the whole time."

Hamilton County Schools Superintendent Rick Smith speaks Wednesday morning about the plan by Hamilton County officials to make $50 million available for new school construction.

Hamilton County Schools Superintendent Rick Smith speaks Wednesday...

Photo by Jenna Walker /Times Free Press.


Most of the Hamilton County Commission and many school board members gathered with Coppinger on the courthouse steps the following morning for a news conference.

The mayor announced the county would be making available $50 million to build new schools.

The timing of the announcement and amount of the money directly resulted from the work of Wright's team, Coppinger said before the news event.

As part of the bond deal, the county retired $41 million in commercial paper - a type of short-term line of credit. The move locked in a lower, fixed interest rate and freed up debt capacity to take on new capital projects. Ultimately, Wright concluded the county would have $50 million to build schools.

Wright and his team weren't at the announcement. Many of his accountants were working to close the county's books for the end of the year.

"Our celebration is with a cup of coffee," Kiser said.

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